MojoNation allowed people to break up confidential files into encrypted chunks and distribute those pieces on computers also running the software. If someone wanted to download a copy of this encrypted file, he would have to download it simultaneously from many computers. This concept, Cohen thought, was perfect for a file sharing program, since programs like KaZaA take a long time to download a large file because the file is (usually) coming from one source (or "peer"). Cohen designed BitTorrent to be able to download files from many different sources, thus speeding up the download time, especially for users with faster download than upload speeds. Thus, the more popular a file is, the faster a user will be able to download it, since many people will be downloading it at the same time, and these people will also be uploading the data to other users.

In April 2001, Cohen quit MojoNation and began work on BitTorrent. Cohen unveiled his novel ideas at the first CodeCon conference, which he and his roommate Len Sassaman created as a showcase event for novel technology projects after becoming disillusioned with the state of technology conferences. It remains an event for those seeking information about new directions in software, though BitTorrent continues to lay claim to the title of "most famous presentation".

Cohen wrote the first BitTorrent client implementation in Python, and many other programs have since implemented the protocol.

In the summer of 2002, Cohen collected free pornography to lure beta testers to use the program. BitTorrent gained its fame for its ability to quickly share large music and movie files online. Cohen himself has claimed he has never violated copyright law using his software.

By mid-2005, BitTorrent, Inc. was funded by venture capitalist David Chao from Doll Capital Management, and in late 2005 Cohen and Navin made a deal with the MPAA to remove links to illegal content on the official BitTorrent website. The deal was with the seven largest studios in America. The agreement means the site will comply with procedures outlined in the Digital Millennium Copyright Act.